Financial conditions are tightening, with the 10-year Treasury rate surpassing 4.75%. In August, the total number of unfilled job openings in the economy surged to 9.6 million, up from an estimated 8.9 million in July. While the Federal Reserve aims to influence the demand side of the economy via higher interest rates, the fundamental solution to the labor shortage lies in recruiting, training, and retaining skilled workers, according to the National Association of Home Builders' Eye on Housing.
The construction labor market cooled in August, with a decrease in job openings to 350,000, reflecting the housing market's adjustment to rising interest rates. However, the housing market remains underbuilt and will continue to require additional labor, lots, and materials.
While the Fed intends for higher interest rates to have an impact on the demand-side of the economy, the ultimate solution for the labor shortage will not be found by slowing worker demand, but by recruiting, training and retaining skilled workers. This is where the risk of a monetary policy mistake can be found. Good news for the labor market does not automatically imply bad news for inflation.
Looking forward, attracting skilled labor will remain a key objective for construction firms in the coming years. While a slowing housing market will take some pressure off tight labor markets, the long-term labor challenge will persist beyond the ongoing macro slowdown.